David Moenning's Daily State of the Markets:
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Rates on a Rampage
Good morning. Stocks succumbed to selling once again yesterday afternoon in response to interest rates breaking out to new multi-year highs. Sometimes the reasons behind the stock market's movements are difficult to decipher. But this time, however, things are pretty simple. With rates on a rampage, there is fear that one of the major props for the bull market - low interest rates - may be dissipating before our eyes.
The reasons for the move in the bond market were many yesterday. But the key takeaway is that the yield on the 10-year closed up at 5.25%, which broke a multi-year downtrend line on the charts and is the highest yield since April 2002.
Why are rates moving up, you ask? After all, the yield on the 10-year was a rather pedestrian 4.60% intraday on May 11, which means that yields have soared 0.65% in 22 days. As we mentioned yesterday, the primary impetus for the move is the fact that interest rates are rising around the world and thus, rates here is the U.S. must also rise in order to keep pace.
Yesterday, it was once again the global stage that was behind the initial surge in bond yields. China reported the highest inflation level in 27 months. The UK saw their Core CPI come in higher than expected, which triggered hawkish comments from the Bank of England. And finally, Japan's Wholesale Prices were also higher than expectations.
As if this wasn't enough for the boys in the bond pits to fret over, the rather tepid reaction by foreigners to the Government's auction of $8 billion in new 10-year notes certainly attracted some attention. And finally, former Fed Chairman Alan Greenspan, who apparently misses the limelight, felt compelled to suggest that interest rates would probably move higher in the future.
So, with bond yields breeching what many believe is a line in the bond market sand, stock traders threw up their hands and hit the sell button. The result was the Dow's third triple-digit decline within the last five days and a visit to the recent lows on the charts.
Turning to this morning, we've got some economic data to review in the U.S., but before we get to the data we should note that the worry over interest rates has not abated as yield on the 10-year has reached 5.31% in the pre-market session already.
On the economic front, Retail Sales came in at 1.4%, which was hotter than expectations for an increase of +0.7%. When you strip out the sale of Autos, the number was equally as strong at 1.3%, which was better than the consensus estimates.
We also got a report on Import Prices, which, of course factors into the inflation equation. This number also came in a bit hotter than expected at +0.9%.
Stocks have sold off in reaction to the news but remain positive on the morning. And bond yields, as you might guess, have continued to move higher in reaction.
Running through the rest of the pre-game indicators, the foreign markets are a little lower in reaction to the move in the U.S. Gold futures are moving down again this morning by $2.60 to $650.50. In the oil pits, crude futures are moving down $0.18 with the latest quote at $65.17. Interest rates are surging yet again this morning with the yield on the 10-year currently trading at 5.31%, which is, as we've mentioned, the highest levels in several years. And finally, with about an hour before the bell, stock futures in the U.S. are looking a little better. The Dow futures are currently up by about 25; the S&P's are about 3 points above board, while the NASDAQ looks to be about 4 points or so better than fair value at the moment.
Stocks "In Play" This Morning:
News, Upgrades/Downgrades/Brokerage Research:*
Canadian Natl Railway (NYSE: CNI) - Downgraded at Bear Stearns
Alcan (NYSE: AL) - Upgraded at Bear Stearns
BT Group (NYSE: BT) - Upgraded at Bear Stearns
Bristol Meyers (NYSE: BMY) - Upgraded at Citigroup
Telefonos de Mexico (NYSE: TMX) - Downgraded at Citigroup
Blockbuster (NYSE: BBI) - Upgraded at Citigroup
Nucor (NYSE: NUE) - Removed from Conviction Buy at Goldman Sachs
Dean Foods (NYSE: DF) - Upgraded at JP Morgan
Illinois Tool Works (NYSE: ITW) - Upgraded at Merrill Lynch
Mr. Moenning holds Long positions in stocks mentioned: MER, GS
Note: All earnings reports compared to Reuter's consensus estimates
** For More of David Moenning's Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM's programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
Good morning. Stocks succumbed to selling once again yesterday afternoon in response to interest rates breaking out to new multi-year highs. Sometimes the reasons behind the stock market's movements are difficult to decipher. But this time, however, things are pretty simple. With rates on a rampage, there is fear that one of the major props for the bull market - low interest rates - may be dissipating before our eyes.
The reasons for the move in the bond market were many yesterday. But the key takeaway is that the yield on the 10-year closed up at 5.25%, which broke a multi-year downtrend line on the charts and is the highest yield since April 2002.
Why are rates moving up, you ask? After all, the yield on the 10-year was a rather pedestrian 4.60% intraday on May 11, which means that yields have soared 0.65% in 22 days. As we mentioned yesterday, the primary impetus for the move is the fact that interest rates are rising around the world and thus, rates here is the U.S. must also rise in order to keep pace.
Yesterday, it was once again the global stage that was behind the initial surge in bond yields. China reported the highest inflation level in 27 months. The UK saw their Core CPI come in higher than expected, which triggered hawkish comments from the Bank of England. And finally, Japan's Wholesale Prices were also higher than expectations.
As if this wasn't enough for the boys in the bond pits to fret over, the rather tepid reaction by foreigners to the Government's auction of $8 billion in new 10-year notes certainly attracted some attention. And finally, former Fed Chairman Alan Greenspan, who apparently misses the limelight, felt compelled to suggest that interest rates would probably move higher in the future.
So, with bond yields breeching what many believe is a line in the bond market sand, stock traders threw up their hands and hit the sell button. The result was the Dow's third triple-digit decline within the last five days and a visit to the recent lows on the charts.
Turning to this morning, we've got some economic data to review in the U.S., but before we get to the data we should note that the worry over interest rates has not abated as yield on the 10-year has reached 5.31% in the pre-market session already.
On the economic front, Retail Sales came in at 1.4%, which was hotter than expectations for an increase of +0.7%. When you strip out the sale of Autos, the number was equally as strong at 1.3%, which was better than the consensus estimates.
We also got a report on Import Prices, which, of course factors into the inflation equation. This number also came in a bit hotter than expected at +0.9%.
Stocks have sold off in reaction to the news but remain positive on the morning. And bond yields, as you might guess, have continued to move higher in reaction.
Running through the rest of the pre-game indicators, the foreign markets are a little lower in reaction to the move in the U.S. Gold futures are moving down again this morning by $2.60 to $650.50. In the oil pits, crude futures are moving down $0.18 with the latest quote at $65.17. Interest rates are surging yet again this morning with the yield on the 10-year currently trading at 5.31%, which is, as we've mentioned, the highest levels in several years. And finally, with about an hour before the bell, stock futures in the U.S. are looking a little better. The Dow futures are currently up by about 25; the S&P's are about 3 points above board, while the NASDAQ looks to be about 4 points or so better than fair value at the moment.
Stocks "In Play" This Morning:
News, Upgrades/Downgrades/Brokerage Research:*
Canadian Natl Railway (NYSE: CNI) - Downgraded at Bear Stearns
Alcan (NYSE: AL) - Upgraded at Bear Stearns
BT Group (NYSE: BT) - Upgraded at Bear Stearns
Bristol Meyers (NYSE: BMY) - Upgraded at Citigroup
Telefonos de Mexico (NYSE: TMX) - Downgraded at Citigroup
Blockbuster (NYSE: BBI) - Upgraded at Citigroup
Nucor (NYSE: NUE) - Removed from Conviction Buy at Goldman Sachs
Dean Foods (NYSE: DF) - Upgraded at JP Morgan
Illinois Tool Works (NYSE: ITW) - Upgraded at Merrill Lynch
Mr. Moenning holds Long positions in stocks mentioned: MER, GS
Note: All earnings reports compared to Reuter's consensus estimates
** For More of David Moenning's Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM's programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
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